"Major Export Companies, Raw Material Purchase Prices Up 18.6%... Operating Profit Down 5.9%"

Hankyung Research Institute Investigates Corporate Impact Due to Rising Raw Material Prices

Data provided by Korea Economic Research Institute

[Asia Economy Reporter Kim Heung-soon] Recently, the sharp rise in raw material prices has not only deteriorated the profitability of domestic export companies but also led to an increase in consumer prices, which could become a burden for both businesses and the public.

The Korea Economic Research Institute (KERI), under the Federation of Korean Industries, commissioned market research firm Monoresearch to conduct a survey on the impact of rising raw material prices targeting 12 major export-oriented industries among the top 500 companies by sales (100 companies responded). On the 19th, it was revealed that the average raw material purchase price for companies this year increased by 18.6% compared to the previous year.

The increase rate of raw material purchase prices by industry was surveyed as follows: steel 29.8%, petrochemicals and products 26.3%, general machinery and shipbuilding 19.5%, electrical and electronics 12.5%, biohealth 11.6%, and automobiles and parts 10.5%.

8 out of 10 Companies Say "Sharp Rise in Raw Material Prices Worsens Management"

Regarding how the rise in raw material prices affects the business environment, 83.0% of responding companies answered that the increase negatively impacts their management environment.

Among companies whose raw material purchase prices rose compared to the previous year, 83.5% reported a decline in operating profit. The average decrease was identified as 5.9%.

The operating profit change rate by industry was -8.8% for general machinery and shipbuilding, the largest decrease, followed by petrochemicals and products -7.1%, biohealth -6.0%, steel -5.7%, automobiles and parts -5.2%, and electrical and electronics -1.8%.

Data provided by Korea Economic Research Institute

Raw Material Prices Expected to Rise for Over 6 Months
Responding with Product Price Increases and Cost Reduction

More than half (65.2%) of companies whose raw material purchase prices increased this year compared to last year stated they respond to the rise by raising product prices (34.1%) and reducing costs other than raw materials (31.1%). Other responses included advance purchase and securing of raw materials 15.9%, finding alternative raw materials 12.2%, no response 3.0%, use of options and derivatives 1.1%, and factory shutdowns 0.4%.

The average product price increase rate among companies responding by raising prices was 13.8%. By industry, the product price increase rates were petrochemicals and products 19.6%, steel 18.4%, general machinery and shipbuilding 12.5%, automobiles and parts 10.4%, biohealth 7.5%, and electrical and electronics 6.9%.

When asked about the outlook for raw material prices, 76.1% expected the rise to continue for more than six months, anticipating the upward trend to last at least until the second quarter of next year, around April to May 2022.

Securing Stable Supply Sources through Overseas Resource Development
Reducing Raw Material Price Burden via Import Tariff Cuts

The proportion of raw material purchase costs in companies' cost of sales averaged 41.0%. By industry, it was petrochemicals and products 53.3%, steel 46.7%, electrical and electronics 37.0%, biohealth 36.2%, general machinery and shipbuilding 34.4%, and automobiles and parts 33.7%.

The share of imported raw materials in total raw materials purchased by companies averaged 41.7%. By industry, the proportions were petrochemicals and products 47.9%, biohealth 46.2%, electrical and electronics 45.0%, general machinery and shipbuilding 38.5%, automobiles and parts 38.3%, and steel 27.5%.

To cope with raw material price volatility, companies suggested necessary government policies such as support for overseas resource development to secure stable raw material supply sources (44.0%), reduction of raw material import tariffs (37.9%), support for securing raw materials through recycling of waste resources (9.9%), and government release of raw material stockpiles (8.2%).

Choo Kwang-ho, head of the Economic Policy Office at KERI, stated, "As a resource-poor country, Korea is highly dependent on imported raw materials and vulnerable to international raw material price volatility. In the short term, it is necessary to reduce raw material import tariffs to stabilize producer prices and prevent pass-through to consumer prices. In the long term, securing stable raw material supply sources through support for overseas resource development is essential."

This content was produced with the assistance of AI translation services.